ILAYANKUDI CO-OP URBAN BANK LTD.,SIVAGANGAI vs. DCIT, NCC-1,, MADURAI

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ITA 138/CHNY/2026Status: DisposedITAT Chennai09 July 2026AY 2017-188 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that while the assessee fulfilled the substantive conditions for immunity from penalty under Section 270AA, it failed to file the prescribed Form 68. However, considering the substantive fulfillment and the principle of substantial justice, the non-filing of the form was treated as a technical breach.

What were the facts?

The assessee bank claimed deductions for rural branch advances and NPA under ICDS, which substantially reduced its profit. Upon realizing the mistake, the assessee withdrew these claims during assessment, paid the tax demand promptly, and did not file an appeal.

What were the issues?

Whether the assessee is eligible for immunity from penalty under Section 270AA despite not filing the prescribed application form, and whether the non-filing of the form is a technical breach that should not deny substantive rights.

Which sections of the Income-tax Act were involved?

Section 270A,Section 270AA

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI

Before: SHRI ABY T. VARKEY & SHRI GAGAN GOYAL

Hearing: 08.06.2026Pronounced: 09.07.2026

आदेश / O R D E R PER ABY T. VARKEY, JM: This is an appeal preferred by the assessee-Co-operative Urban Bank Limited against the order of the Learned Commissioner of Income Tax (Appeal)/NFAC, (hereinafter referred to as ‘Ld.CIT(A)’), Delhi, dated 10.10.2025 for the Assessment Year (hereinafter referred to as ‘AY’) 2017-18.

ITA No. 138/Chny/2026 (AY 2017-18) Ilayakundi Co-op Urban Bank Limited :: 2 :: 2. The main grievance of the assessee is against the action of the Ld.CIT(A) confirming the action of the penalty levied u/s.270A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) to the tune of Rs.55,86,617/- for ‘under reporting of income’ to the tune of Rs.3,22,95,122/-.

3.

The brief facts are that the assessee-Co-operative Urban Bank Ltd is engaged in the business of banking and filed its return of Income (RoI) on 30.10.2017 for AY 2017-18 disclosing net-loss of Rs.1,33,46,428/-. The return was selected for scrutiny and pursuant to the notices issued by the AO, the Managing Director, General Manager appeared before AO along with Ld.AR of the assessee and they explained the return of income filed by it. The AO inter alia noted that the assessee had claimed the following exemptions: -

1.

10% of average advance of Rural Branch – Rs.43,36,686/- 2. NPA not charged to revenue claimed under ICDS Rs.2,79,58,436/-. The AO noted that these claims made by the assessee had substantially reduced the profit. Pursuant to the notices issued by the AO, the assessee vide reply dated 13.12.2019 voluntarily submitted that:-

● they had inadvertently claimed deduction of 10 percentage of Average Advances on Rural Branch being Rs.43,36,686/-. ● they had inadvertently claimed bad debts accumulated over the years amounting to Rs.2,79,58,436/- as deduction instead of the bad debts for the current year alone being Rs.18,00,000/-:and

ITA No. 138/Chny/2026 (AY 2017-18) Ilayakundi Co-op Urban Bank Limited :: 3 :: ● thus assessee withdrew the aforesaid claims. Pursuant to the same, the AO passed the assessment order on 21.12.2019 assessing income at Rs.1,89,48,694/-. Pursuant to the assessment order dated 21.12.2019, assessee remitted the entire tax demand by the AO on 04.01.2020 [i.e. within 14 days of the demand], and didn’t file any appeal against the assessment order dated 21.12.2019. Then the AO issued penalty notice u/s.270A of the Act, calling for assessee’s explanation as to why penalty should not be imposed for ‘under reporting of income’ to the tune of Rs.3,22,95,122/-. The assessee objected to the proposed penalty u/s.270A of the Act by claiming that it was eligible/entitled for immunity from imposition of penalty u/s.270AA of the Act since it satisfies the condition for invoking the immunity. Alternatively, the assessee also defended its action for claiming in its return the deduction under ICDS (Income-tax Computation and Disclosure Standard) which are the guidelines to calculate the taxable income of assessee-Bank; and submitted that provisions of ICDS were very complex and CBDT had to rescind its earlier notifications [making ICDS apply for AY 2016-17] and later issued several revised notifications explaining and clarifying the implementation of ICDS from AY 2017-18 (refer Page 61 of paper book). It was also submitted that since relevant A.Y:2017-18 was the first year of

ITA No. 138/Chny/2026 (AY 2017-18) Ilayakundi Co-op Urban Bank Limited :: 4 :: adoption of ICDS, the Appellant-assessee had inadvertently claimed a higher figure under ICDS and pointed out that at the time of assessment realizing its mistake had suo-motto immediately withdrew the claim, which action goes on to prove that the error was Bonafide and un-intentional and cited the case law of M/s Price Waterhouse Coopers (P.) Ltd. v. CIT [2012] 25 taxmann.com 400 (SC), wherein it was held by Hon’ble Apex Court as follows:

19.

The contents of the Tax Audit Report suggest that there is no question of the assessee concealing its income. There is also no question of the assessee furnishing any inaccurate particulars. It appears to us that all that has happened in the present case is that through a bona fide and inadvertent error, the assessee while submitting its retum, failed to add the provision for gratuity to its total income. This can only be described as a human error which we are all prone to make. The caliber and expertise of the assessee has little or nothing to do with the inadvertent error. That the assessee should have been careful cannot be doubted, but the absence of due care, in a case such as the present does not mean that the assessed is guilty of either furnishing inaccurate particulars or attempting to conceal its income. 20. we are of the opinion, given the peculiar facts of this case, that the imposition of penalty on the assessee is not justified. We are satisfied that the assessee had committed an inadvertent and bona fide error and head to intended to or attempted to either conceal its income or furnish inaccurate particulars. 4. However, the AO didn’t agree with the contentions of the assessee on the ground that the assessed income exceeded the returned income and therefore, according to him, Section 270A of the Act stood automatically attracted and hence, he brushed aside inter alia the assessee’s assertion that it is eligible for immunity u/s 270AA of the Act since it satisfied the condition precedent specified

ITA No. 138/Chny/2026 (AY 2017-18) Ilayakundi Co-op Urban Bank Limited :: 5 :: in it by promptly remitting the tax and interest as per the demand raised pursuant to passing of assessment order on 21.12.2019 (within 30 days and didn’t prefer any appeal against the assessment order). And the AO levied penalty of Rs.55,86,617/- being 50% of the amount of tax payable on ‘under-reported income’ as per provision of Section 270A of the Act by passing the penalty order on 11.1.2022.

5.

On appeal, the Ld.CIT(A) confirmed the action of the AO by observing that the defense raised by assessee attributing mistakes arising from misunderstanding or first-year of implementing ICDS cannot exempt the assessee from penalty and according to him, even if the claims were disclosed in the return/tax audit report (TAR), the amounts were ultimately disallowed during assessment, which establishes ‘under-reporting of income’, and hence even if the assessee has corrected the claim during the assessment or paid the demand promptly, does not absolve it from rigors of penalty under the provisions of section 270A of the Act.

6.

Aggrieved by the impugned action of the Ld.CIT(A), the assessee is in appeal before this Tribunal.

7.

We have heard both the parties and perused the material available on record. We note that the assessee-Co-operative Urban Bank Ltd is

ITA No. 138/Chny/2026 (AY 2017-18) Ilayakundi Co-op Urban Bank Limited :: 6 :: engaged in the business of banking and filed its return of Income (RoI) on 30.10.2017 for AY 2017-18 disclosing net-loss of Rs.1,33,46,428/-, which was selected for scrutiny. The AO noted that the assessee had claimed the following exemptions (1) 10% of average advance of Rural Branch – Rs.43,36,686/- (2) NPA not charged to revenue claimed under ICDS Rs.2,79,58,436/-, which claims, according to AO had substantially reduced the profit and gave notice to assessee. Pursuant to the same, the assessee is noted to have realized its mistake and withdrew the ibid claims and accordingly, the AO passed the assessment order on 21.12.2019 assessing income at Rs.1,89,48,694/-. Pursuant thereto, assessee paid tax & interest within the period/time given in the assessment order/demand notice and didn’t prefer an appeal against the assessment order. Thus it is an undisputed fact that the assessee had fulfilled the conditions prescribed u/s.270AA of the Act for claiming immunity from Imposition of penalty u/s.270A of the Act by duly remitting the tax & Interest as per the order of the assessment as well as didn't file any appeal against the assessment order dated 21.12.2019. Thus, it is noted that the assessee has fulfilled the conditions under Clause (a) & Clause (b) of sub-section (1) of section 270AA of the Act, but it didn't file before the AO the application for immunity in Form 68 as prescribed by sub-section (2) of section 270AA of the Act. In case, if the assessee had filed Form 68 within the prescribed period stated in sub-

ITA No. 138/Chny/2026 (AY 2017-18) Ilayakundi Co-op Urban Bank Limited :: 7 :: section (2), [i.e. within one month from the end of the month in which the assessment order was received by assessee] then the AO should have granted immunity from imposition of penalty u/s.270A of the Act. At the cost of repetition, it is noted that the assessee has fulfilled both the conditions for grant of immunity as stipulated under clause (a) & (b) of sub-section (1) of section 270AA of the Act, which are substantive in nature except didn't file Form 68 before AO. Therefore, in substance assessee was entitled for claiming immunity from imposition of penalty u/s.270A of the Act. In this context, it has to be kept in mind that courts are meant to do substantial justice between the parties, and that technical rules or procedure should not be given precedence over doing substantial justice. Undoubtedly, justice according to the law, doesn't merely mean technical justice, but means that law is to be administered to advance justice [refer the decision dated 30.10.2017 of the Hon'ble Supreme Court in the case of Pankaj Bhai Rameshbhai Zalavadiya v. Jethabhai Kalabhai Zalavadiya in Civil Appeal No.155549 of 2017]. In the given factual background, according to us, non-filing of Form 68 is only a technical or venial breach which should not snatch away the substantive right to claim immunity from levy of penalty, which assessee got vested with on fulfillment of substantive conditions mandated in Clause (a) & (b) (4) of sub-section (1) of section u/s.270AA of the Act. For such a proposition, we also refer to the decision of this Tribunal in the case of

ITA No. 138/Chny/2026 (AY 2017-18) Ilayakundi Co-op Urban Bank Limited :: 8 :: M/s. Citadines OMR Aparthotel Pvt. Ltd., vs. The Income Officer, Corporate Ward-1(3), Chennai in ITA No.303/Chny/2026 dated 10.02.2026. Hence, considering the overall facts in this case, we are of the view that no penalty ought to have been levied u/s.270A of the Act for ‘under-reporting of income’ and therefore, we direct deletion of the same.

8.

In the result, appeal filed by the assessee is allowed.

Order pronounced on the 09th day of July, 2026, in Chennai.

Sd/- Sd/- (गगन गोयल) (एबी टी. वक�) (ABY T. VARKEY) (GAGAN GOYAL) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER चे�नई/Chennai, �दनांक/Dated: 09th July, 2026. YS आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु�/CIT, Chennai / Madurai / Salem / Coimbatore. 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF YASHV Digitally signed by YASHVIR IR SINGH Date: 2026.07.20 SINGH 15:36:51 +05'30'

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